I am a long term buy and hold investor who focuses on dividend growth stocks

Tuesday, March 17, 2009

Dividend Aristocrats keep raising their dividends

Overall investors have mainly been focusing on dividend cuts in 2009. I believe that most stocks that pay out dividends are cyclical in nature. Thus, they do not have the specific competitive advantages, which provide for a long and sustainable annual dividend increases over time.

The starting list for any dividend growth investor, who is looking for companies, which have a proven track record of consistently raising their dividends for 25 years, is the S&P Dividend Aristocrats Index. There were 52 companies in the index at the end of 2008. So far this year the following dividend aristocrats have increased their dividends:

In January Bemis (BMS) increased its dividend to 0.90 from 0.88, which marked the 26 consecutive increase for the manufacturer of flexible packaging products and pressure sensitive materials.

Consolidated Edison (ED) increased its dividends by 1%, which marked the 35th annual consecutive increase for this provider of electric, gas, and steam utility services. The stock currently yields 5.80%. (analysis)

Family Dollar Stores (FDO) increased its dividends by 8%, which marked the 33rd annual consecutive increase for this operator of of self-service retail discount stores. The stock currently yields 1.90%. (analysis)

McGraw-Hill (MHP) increased its dividends by 2.30%, which marked the 36th annual consecutive increase for this provider of information services and products. The stock currently yields 4.10%. (analysis)

In February 3M (MMM) increased its dividends by 2%, which marked the 51st consecutive increase for this diversified technology company. The stock currently yields 4.30%. (analysis)

Abott Laboratories (ABT), which engages in the development, manufacture, and sale of health care products worldwide, increased the company's quarterly common dividend 11% to $0.40 per share. This marked the company’s 37th year of consecutive dividend increases. The stock currently yields 2.60%. (analysis)

Archer-Daniels-Midland (ADM) increased its quarterly dividend from $0.13 to $0.14/share, which marked the 34th consecutive increase for this agricultural commodities and products company. The stock currently yields 2.00%. (analysis)

Chubb Corp (CB), which provides property and casualty insurance to businesses and individuals, announced that its Board has approved a 6.10% increase in its quarterly dividend from $0.33 to $0.35 per common share. CB has consistently increased its dividends for forty-four consecutive years. The stock currently yields 3.30%. (analysis)

Coca-Cola (KO), which engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates and syrups worldwide, raised its quarterly dividend by 8% from $0.38 to $0.41 per common share. The company behind one of the world’s best-known consumer brands has rewarded its shareholders with an uninterrupted streak of increased dividends for 47 years. The stock currently yields 3.50%. (analysis)

Integrys Energy (TEG), which operates as a regulated electric and natural gas utility company increased its quarterly dividends payment to $0.68/share, which marked the fifty-first consecutive year of increased payouts. This utility company currently yields 7.00%.

Kimberly-Clark (KMB), which engages in the manufacture and marketing of health and hygiene products worldwide, announced that its Board has approved a 3.40% increase in its quarterly dividend from $0.58 to $0.60 per share. KMB has consistently increased its dividends for thirty-seven consecutive years. The stock currently yields 5.00%. (analysis)

Pitney Bowes (PBI) increased its dividends by 2.90%, which marked the 27th consecutive increase for this provider of mail processing equipment and integrated mail solutions. The stock currently yields 6.00%.

Sherwin-Williams (SHW), which engages in the development, manufacture, distribution, and sale of paints, coatings, and related products, boosted its dividends for the thirty first consecutive year. The stock currently yields 3.10%. (analysis)

Sigma- Aldrich (SIAL) increased its dividends to $0.145 from $0.13, which marked the 33th consecutive increase for this specialty chemicals company. The stock currently yields 1.70%.

Wal-Mart (WMT), which operates the largest chain of retail stores in various formats worldwide, announced that its Board has approved a 15% increase in its quarterly dividend to $0.2725 per share. Wal-Mart has consistently increased its dividends for thirty-five consecutive years. The stock currently yields 1.90%. (analysis)

The changes in the Dividend Aristocrat index should be expected and they are a natural process that occurs even in normal years. In 1989, the number of companies in the index was only 26. Only 7 of the original companies still remain in the index. The companies are: DOV, EMR, JNJ, KO, LOW, MMM and PG. The percentage of companies that remain in the index after 10 years is about 35%. There have been about 116 companies that have gone through the index for the 15-year period form 1989 to 2004. The average company stayed 6.5 years in the S&P Dividend Aristocrats index from the time of its addition. So as a dividend investor, you should expect year over year changes in the index.

I believe that the Dividend Aristocrats above are still showing a confidence in future cash flows by raising their dividends to shareholders even in the toughest crisis since the Great Depression. Only a company, which has a business model that allows it to generate increasing streams of cash, could support a long streak of dividend raises to stockholders. That’s why dividend investors should ignore the fear of dividend cuts from cyclical companies and instead focus on a diversified list of stocks from a variety of sectors with long track records of dividend increases until the current storm passes.

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